What the Big Guns are Doing

Big gun investors John Paulson, Steve Cohen, Anton Schutz and Eddie Lampert all made surprising investment moves this past quarter that investors may want to take note of, according to Wall Street research shop SNL Financial.

Add Anton Schutz's Mendon Capital to the bulls on the banks, as his shop doubled its JPMorgan (JPM) stake in the first quarter. SNL has more detail you won’t want to miss:

PAULSON CUTS BACK ON U.S. FINANCIALS

Closely watched John Paulson is the hedge fund manager famous for making smart bets against the U.S. subprime mortgages in 2007. He’s hit a rocky patch, with some of his funds dropping by a third to a half, notably due to investments in gold, which have sunk into the red.

And now his fund, Paulson & Co., has taken a big scissor to holdings of U.S.-based financial services stocks in the first quarter, says SNL.

The research shop says his fund dumped out of mortgage insurer PMI Group Inc., sliced back on reinsurer XL Group Plc (XL) as well as business development company American Capital Ltd. (ACAS)

Also, SNL found that Paulson & Co. may have sold off entirely its holdings in Citigroup (C) and Bank of America. (BAC) His fund “reported holding about $643.1 million worth of Citigroup Inc. stock and $393.6 million of Bank of America Corp.'s common stock as of Sept. 30, 2011,” SNL says, but “the fund no longer had those stakes by December 2011.”

SNL adds that “Paulson & Co. has, however, held on to its Bank of America warrants, which comprise two classes; one expires in January 2019 and had a market value of $147.1 million as of March 31, while the other expires in October 2018 and had a market value of $13.7 million as of that date.”

Paulson’s fund also “has warrants on a number of other financial institutions, including Capital One and JPMorgan Chase & Co.,” it says.

Which financial name does Paulson really like? The Hartford Financial Services Group Inc. (HIG), it says, with about 37 million shares worth about $790 million as of March 31. That amounts to an 8.5% stake, which also makes him "a powerful shareholder,” SNL notes, as he has been agitating for spinoffs to pare back its balance sheet.

And Paulson & Co. kept its 500,000 shares of Walter Energy Inc. (WLT), which has been the subject of takeover rumors and actively traded by hedge funds, SNL says. Paulson had no other coal holdings as of March 31, it adds. Unlike SAC Capital...

SAC “greatly increased its holdings of coal company common stock during the first quarter, accumulating 4.5 million shares of Alpha Natural Resources Inc. (ANR), among other large stake acquisitions,” SNL says.

The move comes after SAC winnowed back its holdings in 10 publicly traded coal producers “by about half in the fourth quarter of 2011,” says SNL. But as the sector got cheaper as the market weakened, SAC jumped back in.

SAC also bought 1.8 million shares of coal and natural gas producer CONSOL Energy Inc. (CNX) and nearly 1.6 million shares of Canada's Teck Resources Ltd. (TCK), which like Alpha is a major metallurgical coal producer, SNL notes.

Moreover, SNL says SAC “was the most aggressive in accumulating stakes in coal producers” as of the quarter, based on its analysis of quarterly government filings by seven prominent hedge funds (the analysis did not factor in options held by the funds, SNL notes). The funds' holdings may also have changed significantly since the end of the first quarter.

Chicago-based Citadel Advisors LLC also joined SAC in increasing its holdings of coal company common stock during the period, notably in Alpha and Arch Coal Inc. (ACI)

Billionaire investor George Soros' hedge fund, Soros Fund Management, reported no coal company holdings in its latest Form 13F. Soros unloaded a stake in Alpha in the third quarter of 2011.

Bridgewater Associates LP, which claims to be the largest hedge fund in the world with $120 billion in global investments, also reported no coal holdings as of March 31 after liquidating one million Alpha shares in addition to stakes in coal giant Peabody Energy Corp. (BTU) and Cliffs Natural Resources Inc. (CLF), an iron ore and met coal producer.

Greenwich, Conn.-based Tudor Investment Corp. liquidated its Alpha stake during the first quarter, but took a new 12,700-share position in Patriot Coal Corp. (PCX), which has recently seen its shares tank after news of a potential default by a key customer.

EDDIE LAMPERT REDUCES STAKE IN CIT BY 87%

Hedge fund manager and Sears Holdings Corp. (SHLD) chairman Eddie Lampert hasn’t been doing so great overseeing the turnaround of the Sears department stores, which merged with Kmart.

His fund chopped its holdings in financial institutions in the first quarter of 2012, SNL says, citing data from RBS Partners and ESL Investments Inc. shows.

Lampert dramatically cut his stake in CIT Group Inc. (CIT) by 87.1% from the prior quarter, and slashed his holdings in iStar Financial Inc. by 46.2%, SNL says. This struggling mortgage REIT had a big “short interest as a percent of shares outstanding of 20.4%,” as of April 30, SNL notes.

And Lampert cut his holdings of Capital One Financial by 12.1%, leaving a $249.7 million stake in the bank, SNL says.

Lampert’s fund also sat tight on its stake in Genworth Financial Inc. (GNW), its largest stake as a percent of shares outstanding at nearly 2%.

Lampert’s fund also cut stakes in the auto retailer AutoNation Inc. (AN) and auto parts retailer AutoZone Inc. (AZO). Based on data from RBS Partners, Lampert’s fund “also reported an approximately 67% reduced stake in the shares of discount retailer Big Lots (BIG) and a little more than 1% reduction in the shares of Gap Inc.” (GPS)